The links between climate change, economic development and poverty reduction have gained increasing attention over recent years in both the academic and policy literature. In this paper we review potential effects of climate change on the prospects for long-run economic development. These effects might operate directly, via the role of geography (including climate) as a fundamental determinant of relative prosperity, or indirectly by modifying the environmental context in which political and economic institutions evolve. In this regard, we consider potential mechanisms from climate change to long-run economic development that have been relatively neglected to date, including, for instance, effects on the distribution of income and power. We focus in particular on the effects in low-income, semi-arid countries, as they are anticipated to suffer disproportionately the most negative effects of climate change. They also tend to have relatively weak economic and political institutions, constraining their ability to cope with climate variability and shocks. Our review suggests that there are a potentially important set of dynamic interactions and feedback loops between institutions, climate (impacts and vulnerability) and development, which to date have been understudied. Understanding both the direct as well as the indirect effects of climate change is not only fundamental for the design of mitigation and adaptation strategies; whether by addressing the direct impacts of geographical factors, or by addressing their indirect effects on the socio-political environment, mitigation and adaptation strategies are also fundamental as key elements of broader development strategies. Moreover, as climate shocks disproportionally affect the poor, addressing climate-related risks is also a sound strategy in terms of addressing inequality and poverty reduction.

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